Federal Court Of Appeals Sides With Union Against Employer On Fringe Benefits Case

Posted on April 11, 2016

Many contractors try to keep their workers employed during inclement weather months by having employees perform work not within their customary trade. For example, instead of laying off a mason, the contractor may have the mason work in the yard or drive truck at a lower wage rate, without certain benefits. Many times employees are receptive to this arrangement and union business agents do not object because the employee is not doing bargaining unit work.

Unfortunately, while this practice can benefit the employee, unionized contractors expose themselves to great financial risk. With greater frequency, trade union pension funds, when auditing contractors making contributions under collective bargaining agreements, direct their auditors to count the hours worked by the employee, regardless as to whether it involves bargaining unit work or not. The result is that the contractor is liable for pension plan contributions even for work by the employee not covered by the collective bargaining agreement.

In a recent case considered by the U.S. Court of Appeals for the Sixth Circuit, Bunn Enterprises, Inc. v. Operating Engineers Fringe Benefit Programs, No. 14-3255 (2015), the Court held a contractor, Bunn Enterprises, was liable for contributions even though the employees’ work was clearly not operating engineers’ work covered by the collective bargaining agreement.

In Bunn, the plaintiff, Bunn Enterprises, Inc. (“Bunn”), an employer under the Employee Retirement Income Security Act (“ERISA”), was a signatory to a collective bargaining agreement known as the Ohio Heavy Highway Agreement (“CBA”) with the International Union of Operating Engineers. Under the CBA, Bunn paid “fringe benefit contributions” for hours worked by its employees into the Ohio Operating Engineers Fringe Benefit Programs (“Fund”). In 2012, the Fund audited Bunn’s records, and determined that not contributed to the Fund for a certain hours performed by some of its employees. Bunn had reached arrangements with certain of its operators to perform non-operator work and paid them a reduced wage and no pension contribution. Bunn contended that work performed by the employees was not “covered” under the CBA and the employees were not entitled to benefits contributions for those hours.

Bunn filed an action asking a federal District Court for an order declaring that Bunn was only required to make contributions the Fund hours performing work that was “covered” by the CBA. In response, the Fund claimed that Bunn was required to make contributions for all hours worked by Bunn’s union employees. The District Court agreed with the Fund and granted judgment in its favor. Bunn then appealed.

On appeal, the Sixth Circuit affirmed the District Court’s decision, noting that the CBA required payment of fringe benefits for “all hours worked under the Agreement.” The Sixth Circuit concluded that, if the parties had wanted to limit benefits contributions to “covered” work hours, they could have said so in the CBA but did not.

Harpst Ross believes the Sixth Circuit incorrectly interpreted the parties’ obligations because the purpose of the CBA is to set forth wages, beenfits, and working conditions for union employees that are engaged in particular trade work, e.g. electrician or bricklayer. However, under the Bunn decision, employers of union worksers are required to pay fringe benefits into the Fund regardless of what type or nature of work is being performed. So, for example, an employer of a union electrician that allows him or her to drive a truck during a slow period of business, would still be required to pay fringe benefits even though the employee is not performing “covered” work.

While we think the Bunn case is flawed, it is the law in the 6th Circuit (Ohio, Indiana, Kentucky and Michigan), so union contractors should be cautious of employing core employees busy performing work that is outside their labor agreement. For questions regarding labor agreements, please contact John C. Ross or any of the other construction lawyers at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971.

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